IBOR Transition: Virtual Client Briefing Session
Transcript of IBOR Transition: Virtual Client Briefing Session
PUBLIC
20/04/2021
Finalisation: LIBOR Cessation
Timelines and the ISDA Spread
Adjustment
IBOR Transition: Virtual Client
Briefing Session
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1. Introduction
2. Overview of LIBOR
3. Understanding Risk-Free Rates
4. Key Reforms
5. Remediation Approach
6. The Bank’s Capabilities
7. Next Steps
8. Questions and Answers
Agenda
Finalisation: LIBOR Cessation Timelines and the ISDA Spread Adjustment April 2021
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Help ensure you are up-to-date with the latest transition-related regulatory and market
developments.
Help ensure you are aware of the developments in key product groups.
Help ensure you are clear on next steps and the Bank’s engagement with you as we
move close to cessation of LIBOR.
Key outcomes of this virtual briefing session is to:
1. Introduction
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On 5 March 2021, the ICE Benchmark Administration (IBA) announced the results of its
consultation to cease the publication of LIBOR. In an accompanying statement, the Financial
Conduct Authority (FCA) has also declared the future permanent cessation or loss of
representativeness of all 35 LIBOR settings.
Updates on IBA Consultation2. Overview of LIBOR
ISDA Statement on LIBOR
• This announcement constitutes an “Index Cessation Event” under the IBOR Fallbacks
Supplement and the ISDA 2020 IBOR Fallbacks Protocol for all LIBOR settings and the date 5
March 2021 constitutes as a “Spread Adjustment Fixing Date” under the Bloomberg IBOR
Fallback Rate Adjustments Rule Book.
• The Fallback Rate calculated for each Rate Record Day from and including 5 March 2021 will
use the fixed Spread Adjustments published by Bloomberg
• The Index Cessation Event only fixes the spread adjustment but does not cause the fallback
rate to be applied. The fallback rate will be applied only when the relevant LIBOR rate ceases
to be published.
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ARRC Statement on USD LIBOR
On 8 March 2021, the Alternative Reference
Rates Committee (ARRC) confirmed in its
opinion the announcements from the IBA and
UK’s FCA on 5 March 2021 constitute as a
benchmark transition event under the ARRC
fallback language with respect to all USD
LIBOR settings.
Updates on IBA Consultation2. Overview of LIBOR
Finalisation: LIBOR Cessation Timelines and the ISDA Spread Adjustment
April 2021
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Currency Tenor
End of Panel Bank Submission Potential Synthetic LIBOR publication
Date Result Start Date Note
CHF All 31 December 2021 Permanent cessation Not applicable
EUR All 31 December 2021 Permanent cessation Not applicable
GBP
O/N, 1W, 2M, 12M 31 December 2021 Permanent cessation Not applicable
1M, 3M, 6M 31 December 2021 Loss of representativeness 1 January 2022 Subject to FCA consultation
JPY
S/N, 1W, 2M, 12M 31 December 2021 Permanent cessation Not applicable
1M, 3M, 6M 31 December 2021 Loss of representativeness 1 January 2022 Subject to FCA consultation
USD
1W, 2M 31 December 2021 Permanent cessation Not applicable
O/N, 12M 30 June 2023 Permanent cessation Not applicable
1M, 3M, 6M 30 June 2023 Loss of representativeness 1 July 2023 Under consideration by FCA
LIBOR Cessation Dates2. Overview of LIBOR
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Implications on other IBORs that use USD
LIBOR as a calculation input
• SOR – The Steering Committee for SOR and
SIBOR Transition to SORA (SC-STS) has
confirmed that SOR will be discontinued after
30 June 2023.
• THBFIX – The Bank of Thailand formally
announced that the publication of THBFIX
will be discontinued after 30 June 2023.
LIBOR Cessation Dates2. Overview of LIBOR
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April 2021
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Key Differences between LIBOR and RFR3. Understanding Risk-Free Rates
Key
Difference
LIBOR is a forward-looking term rate, that includes both bank credit and
liquidity premia. In comparison, the RFRs are overnight rates, some of which
are secured, and therefore have little to no bank credit or liquidity premium.
What this
means
LIBOR has traditionally been higher than its RFR equivalent due to the credit
and term components. For illustrative purposes, the table below shows the
five-year historical median spread between the 35 LIBOR currency and tenor
rates and respective compounded RFR.
ISDA 5yr historical median spread fixed on 5 March 2021
SN//ON 1W 1M 2M 3M 6M 12M
CHF -0.05510 -0.07050 -0.05710 -0.02310 0.00310 0.07410 0.20480
EUR 0.00170 0.02430 0.04560 0.07530 0.09620 0.15370 0.29930
GBP -0.00240 0.01680 0.03260 0.06330 0.11930 0.27660 0.46440
JPY -0.01839 -0.01981 -0.02923 -0.00449 0.00835 0.05809 0.16600
USD 0.00644 0.03839 0.11448 0.18456 0.26161 0.42826 0.71513
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Credit Adjustment Spread3. Understanding Risk-Free Rates
Derivatives: International Swaps and Derivatives Association (ISDA) has determined that the CAS used for ISDA fallbacks will be based on the historical median spread between the relevant LIBOR and the adjusted RFR* calculated over a five-year lookback period
Cash: Similarly, working groups such as the ARRC and the Working Group on Sterling Risk-Free Reference Rate (RFRWG) have recommended the five-year historical median spread adjustment methodology for fallbacks
Co
ntr
actu
al
Fall
backs
The RFRWG has highlighted two methodologies:▪ Forward approach: based on the forward-looking
basis swap market between LIBOR and RFRs▪ Historical approach: similar to the approach
recommended for contractual fallbacks
Acti
ve
Co
nvers
ion
Source: Bank of England * Compounded RFR over the same accrual period as its corresponding LIBOR
Much work has been done to obtain consensus on how to calculate a fair replacement for LIBOR
Finalisation: LIBOR Cessation Timelines and the ISDA Spread Adjustment April 2021
LIBOR
Adjustment
Spread
(includes two
elements: Credit
Risk and Term
premium)
Compounded
RFR
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Basis Swap Market Reactions to the IBA Announcement3. Understanding Risk-Free Rates
0
2
4
6
8
10
12
14
16
0 10 20 30
The market was pricing in a Q2/Q3 timeline for
the IBA announcement which would trigger an
Index Cessation event.
However, as the IBA announcement came
through on 5 March 2021, the ISDA spread
adjustments were slightly higher than what the
market had priced in prior to the
announcement.
This resulted in the tenor basis markets going
bid.
Chart 1: USD Tenor Basis (6M LIBOR vs 3M LIBOR) Term Structure
(before and after IBA announcement)
4 Jan 20215 Mar 2021
Year
US
D T
enor
Basis
Sw
am
ps (
6M
vs 3
M,
bps)
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Source: Bloomberg
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Basis Swap Market Reactions to the IBA Announcement3. Understanding Risk-Free Rates
25.4
25.6
25.8
26
26.2
26.4
26.6
26.8
0 10 20 30
After the IBA announcement, the markets
have almost effectively priced-in the fallback
spread adjustments.
This was evidenced by the forward basis
being within +/- 0.5bps of the ISDA spread
adjustment for USD 3M LIBOR at 26.161bps.
The spread adjustments for USD 3M LIBOR
becomes effective from 1 July 2023, and
thus, the forward basis will continue to be
driven by funding dynamics for shorter
tenors.
Chart 1: USD SOFR-LIBOR Basis Swap 5Y Forward
Year
US
D S
OF
R –
LIB
OR
Basis
Sw
ap –
5Y
Forw
ard
(bps)
ISDA Spread Adjustment for USD 3M LIBOR = 26.161bps
Source: Bloomberg, Standard Chartered Bank
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Following the FCA’s 2017 announcement that
they would no longer compel banks to submit
LIBOR after 2021, thereby signaling LIBOR’s
likely end, industry working groups were
tasked with identifying successor rates that
were based off actual market transaction.
These rates have come to be known as the
Risk-Free Rates (RFR).
What will Replace LIBOR?4. Key Reforms
Finalisation: LIBOR Cessation Timelines and the ISDA Spread Adjustment
April 2021
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Currency USD GBP JPY CHF EUR SGD
Alternative RFRSecured Overnight
Financing Rate (SOFR)
Sterling Overnight Index
Average (SONIA)
Tokyo Overnight
Average Rate (TONA)
Swiss Average Rate
Overnight (SARON)
Euro Short-Term Rate
(€STR)
Singapore Overnight
Rate Average (SORA)
Administrator
Federal Reserve
Bank of New York
(FRBNY)
Bank of England
(BoE)Bank of Japan (BoJ) SIX Swiss Exchange
European Central
Bank (ECB)
Monetary Authority of
Singapore (MAS)
Rate Published Since April 2018 Since April 2018 Since January 2017 Since August 2009 Since October 2019 Since July 2005
Description of the
RFR
SOFR is secured,
overnight and
transaction-based
encompassing
multiple repo market
segments.
SONIA is unsecured
and overnight and is
calculated based on
daily sterling money
market activity.
TONA is unsecured,
overnight and
transaction-based. It
reflects the
uncollateralised,
overnight call rate
market encompassing
multiple repo market
segments.
SARON is a secured
overnight rate that
reflects interest paid
on interbank overnight
repo transactions.
€STR is an unsecured
overnight rate that
reflects overnight
unsecured fixed rate
deposits of euro area
banks.
SORA is a unsecured
overnight rate that
reflects the average
rate of borrowing
transactions in the
unsecured overnight
interbank SGD cash
market in Singapore.
What will Replace LIBOR? 4. Key Reforms
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4. Key Reforms
Background to forward-looking term RFRs
Finalisation: LIBOR Cessation Timelines and the ISDA Spread Adjustment April 2021
Why are they needed?
• Current RFR tenors are calculated using backward-looking observed overnight rates. The RFRWGdetermined that approximately 90% of GBP LIBOR loan market can use SONIA compounded in arrears.
• However, certain selected areas may need a forward looking term RFR. The FICC Markets Standard Board has published a draft Standard on use of term SONIA reference rates.
What should clients know when considering forward-looking term RFRs?
• Clients should not wait for forward-looking term RFR rates to become available, if they can transact in RFRs compounded in arrears –they should liaise with their vendors to enhance their RFR systems and capabilities.
• There is no consensus on the conventions or calculation methodologies for term RFRs which may vary by jurisdiction. Offer and use of term RFRs is likely to be limited to certain types of products.
What do clients need to
do?
• Review current exposures and identify any contracts where switching to the RFR compounded in arrears approach may not be possible or appropriate.
• Assess operational/system readiness to use forward-looking term RFRs.
• Contact their relationship manager if they have any questions.
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US SOFR UK SONIA Japan TORF Europe €STR
Publication Date TBC 11 January 2021 Expected 26 April 2021 TBC
Vendors
Currently unknown – RFP
process for a potential
vendor postponed
• IBA
• RefinitivQUICK Corp
The following providers are being considered:
• IHS Markit
• European Money Markets Institute (EMMI)
& IBA
• Refinitiv
• FTSE Russell
Status
The ARRC has announced
that it will not be in a
position to recommend term
SOFR by mid-2021 and
cannot guarantee it will be
able to do so by the end of
2021
• ICE Term SONIA and Refinitiv
Term SONIA were launched
on 11 January 2021, available
in 1M, 3M, 6M and 12M tenors
• FMSB has released the
Standard on the use of Term
SONIA Transparency Draft
QUICK Corp. announced that
the calculation and publication of
the Tokyo Term Risk-Free Rate
(TORF) for actual trading,
available in 1M, 3M and 6M
tenors, will start on 26 April
2021.
• Refinitiv and IBA have provided details on
methodology at a 18 February 2021 Euro
RFR WG meeting
Forward-Looking Term RFRs4. Key Reforms
Expected timelines for completion
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LIBOR Transition Milestones4. Key Reforms
ARRC Milestones:
• Jun 21: Cease new use of USD
LIBOR in derivatives, business
loans and securitisations other than
Collateralised Loan Obligation
(CLOs)
• Sep 21: Cease new use of USD
LIBOR in CLOs
Fed, FDIC and OCC Milestone:
• Dec 21: Cease entering into new
contracts that use USD LIBOR as a
reference rate in any event
End of panel bank submissions:
• Dec 21: 1W and 2M tenors
• Jun 23: O/N and 12M tenors
• Jun 23: 1M, 3M and 6M tenors
(loss of representativeness)
RFRWG Milestones:
• End Q2: Cease initiation of new
GBP LIBOR non-linear and
exchange traded derivatives
• End Q3: Complete active
conversion of all legacy GBP
LIBOR contracts, where viable,
and if not, adopt robust fallbacks
End of panel bank submissions:
• Dec 21: O/N, 1W, 2M and 12M
tenors
• Dec 21: 1M, 3M and 6M tenors
(loss of representativeness)
SC-STS Milestones:
• Apr 21: Cease usage of SOR in new cash market products that mature after end-
2021
• Sep 21: Cease usage of SOR in new derivatives contracts
• Sep 21: Cease usage of SIBOR in new contracts
• Sep 21: Substantially reduce gross exposures to SOR derivatives with other FIs to
20%
• Mar 22: Discontinuation of 6M SIBOR
• End 22: Substantially reduce SOR exposures to corporates to 20%
• Jun 23: SOR discontinuation
BoT Milestones:
• Jul 21: Financial Institutions (FIs) to
be ready to offer loans referencing
THOR
• Jul 21: FIs must not issue / offer
new loans, bonds and structured
products referencing THBFIX with
maturity after June 23
• Jun 23: THBFIX discontinuation
ECB Milestone:
• Jan 22: Discontinuation of EONIA
End of panel bank submissions:
• Dec 21: all tenors
CIC Milestones:
• Apr 21: Quick corp. to
publish Tokyo Term Risk-
Free Rate (TORF)
• Q2 21: Cease the issuance
of new loans and bonds
referencing LIBOR
• Q3 21: Significantly reduce
the amount of loans and
bonds referencing LIBOR
• Sep 21: Cease initiation of
new IRS referencing JPY
LIBOR
HKMA Milestones:
• Jan 21: AIs should be in a position to offer
products referencing ARRs to LIBOR
• Jan 21: Adequate fallback provisions in all new
LIBOR contracts maturing after 2021
• End 21: Banks and FI’s to cease issuances of
new LIBOR linked products that will mature
after 2021
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The West has seen significant developments in RFR adoption with UK, Europe and NorthAmerica leading the charge on LIBOR reform
Finalisation: LIBOR Cessation Timelines and the ISDA Spread Adjustment April 2021
IBOR Reforms in the West
4. Key Reforms
By December 2021 , Central Counterparties (CCP)’s will commence pre-emptive transition of legacy LIBOR trades to RFRs
Nordics
Switzerland The Swiss Financial Market Supervisory Authority (FINMA) has recommended for supervised institutions to implement system and process changes,
mitigate risks for “tough legacy” contracts by 30 June 2021. By 31 December 2021, supervised institutions are recommended to achieve full
operational readiness and all new contracts should be based on alternative reference rates
CanadaThe Canadian Dollar Overnight Rate (CDOR) has been reformed and is intended to co-exist with the RFR alternative Canadian Overnight Repo Rate
Average (CORRA). Nevertheless, Refinitiv, the benchmark’s administrator, has announced that the 6M and 12M tenors will cease by 17 May 2021.
The 1M, 2M and 3M tenors of CDOR are not expected to cease
Across the Nordic region, the current IBOR benchmarks are expected to continue for Sweden (Stockholm Interbank Offered Rate (STIBOR)), Denmark
(Copenhagen Interbank Offered Rate (CIBOR)) and Norway (Norwegian Interbank Offered Rate (NIBOR)). Alternative reference rates have been
developed for Denmark (Denmark Short-Term Rate (DESTR)) and Norway (Norwegian Overnight Weighted Average (NOWA)) with the Swedish
alternative in development. Current IBORs will be updated to include fallback language to the RFR rates in the event of an IBOR cessation event
United States
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In the Asia Pacific region, regulatory focus on LIBOR transition has been heightened by
regulators, who have encouraged banks and FIs to adopt RFRs
Finalisation: LIBOR Cessation Timelines and the ISDA Spread Adjustment April 2021
IBOR Reforms in the East
4. Key Reforms
• Mumbai Interbank Forward Offer Rate (MIFOR) uses USD LIBOR and will be discontinued/reformed; alternative rates still being identified
• Reserve Bank of India (RBI) issued a ‘Dear CEO’ letter: (i) the need to be prepared for the LIBOR cessation; (ii) asked to identify LIBOR
exposures; (iii) assess transition preparedness and risks; and (iv) ensure customer sensitisation on the subject
Malaysia
Vietnam• Refinitiv has announced plans to launch the new VND Risk-Free Rate, VNONIA by Q2 or Q3 of 2021
• USD Vietnam Interbank Offered Rate (VNIBOR), VNDFX and the 6M, 9M and 12M tenors of the VND VNIBOR are to be discontinued by end
2021
• Other VND VNIBOR tenors to be retained for 2 to 3 years to allow users to become familiar with VND Overnight Index Average (VNONIA)
Philippines• Philippine Interbank Reference Rate (PHIREF) uses USD LIBOR and will be discontinued/reformed; with intention to establish a replacement rate
• Quarterly reporting to central bank on LIBOR and PHIREF exposures for September 2020 to March 2022
• Banks are also required to report on their transition from LIBOR to alternative reference rate
• Kuala Lumpur Interbank Offered Rate (KLIBOR) future is currently in discussion with no new rate identified as an overnight benchmark
• Q2 2021 – cease issuance of products referencing certain LIBOR settings and ensure adequate fallbacks
• Q4 2021 – cease issuance of products referencing USD LIBOR (O/N, 1M, 3M, 6M & 12M) and ensure adequate fallbacks
India
Indonesia• Bank Indonesia has introduced several refinements to enhance the credibility of Jakarta IBOR (JIBOR)
• On 2 January 2019, Bank Indonesia stopped publishing the O/N JIBOR, and it has been replaced by Indonesia Overnight Index Average
(IndONIA)
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In Africa, regulatory focus on LIBOR transition has been heightened by regulators, who are
working on identifying RFRs
Finalisation: LIBOR Cessation Timelines and the ISDA Spread Adjustment April 2021
IBOR Reforms in the Africa and Middle East
4. Key Reforms
• Johannesburg Interbank Average Rate (JIBAR) is expected to be discontinued and transition to an RFR (the transition timeline is not yet
available)
• Market Practitioners Group has proposed South African Rand Overnight Index Average (ZARONIA) as a replacement for existing
benchmark, South African Benchmark Overnight Rate (SABOR)
• Banks are providing quarterly updates to the Reserve Bank on exposures, risks and progress for LIBOR transition
Bahrain
Egypt The Government has formed a committee in December 2020 with representation from the Central Bank of Egypt, Ministry of Finance and World Bank
to develop an action plan to phase out the use of LIBOR in 2021
UgandaBank of Uganda issued guidance to financial institutions in December 2020 on the transition away from LIBOR. Its guidance include critical milestones
which each financial institution should accomplish
The Central Bank of Bahrain (CBB) has issued a circular to banks requiring them to submit a report of their analysis of the impact of the LIBOR
transition together with a summary of the approach, a plan to address issues arising from the relevant contractual arrangements and measures to
introduce fallback language
South Africa
United Arab
Emirates
To ensure credibility of the Emirates Interbank Offered Rate (EIBOR) and maintain transparency of its fixing process, the Central Bank of the UAE
(CBUAE) has mandated that rate submitters at Panel Banks should rely, as much as possible, on the use of available transaction date in informing
their rate submissions
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Amending fallback language
An effective way to remediate LIBOR
exposures is to actively convert legacy
contracts to their RFR equivalent. The RFRWG
recommended active conversion because:
• There is uncertainty on how the volatility
of GBP LIBOR may change
• Resources may become more limited
towards the end of 2021
Active contract conversion to RFRs
Upon the cessation of LIBOR, clients with LIBOR exposures could find their contracts and hedges
no longer operate as intended and so are encouraged to remediate these positions as soon as
feasible. Delaying the transition could lead to increased exposure to liquidity risk, impacting
contract repricing.
Finalisation: LIBOR Cessation Timelines and the ISDA Spread Adjustment April 2021
5. Remediation Approach
If active conversion is not possible then
existing contracts should be repapered with
hardwired fallback language which describes
the switching rate and mechanism upon
LIBOR
Different Remediation Approaches
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Ultimately, all active contract conversions will require a negotiation between relevant contractual
parties. Whether the client chooses to convert to an RFR or an alternative floating rate, as far as
possible, there should be no detriment on either side.
There are two principal changes when converting LIBOR contracts to their RFR
equivalents
Finalisation: LIBOR Cessation Timelines and the ISDA Spread Adjustment April 2021
Active Contract Conversion
5. Remediation Approach
Change in the interest calculation
methodology and associated
conventions
The calculation methodology will likely be based on the overnight RFR fixing-in-arrears (with industry standard conventions). The interest
period calculation structure will need to be amended accordingly. The industry is being encouraged not to rely on term rates.
Application of the adjustment
spread
▪ LIBOR includes Term Premium and Credit Risk component; RFRs are overnight risk-free (or near risk-free) rates and do not contain
term premium and bank credit risk
▪ To account for this difference, and to ensure a fair conversion of existing contracts, an additional “adjustment spread” is added to any
existing margin for the remaining duration of the loan.
▪ Forward approach: based on the forward-looking basis swap market between LIBOR and RFR.
▪ Historical approach: uses the historical median between LIBOR and the respective compounded RFR over a five-year
lookback period.
▪ The CAS published by Bloomberg (based on five-year historical median approach) for all LIBOR tenors and currencies was fixed on 5
March 2021.
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DERIVATIVE CONTRACTS (PROTOCOL) LOAN CONTRACTS
Fallback Methodology
• Following a number of industry consultations, ISDA launched the IBOR
Fallbacks Supplement, which amends ISDA’s standard definitions for interest
rate derivatives to incorporate robust fallbacks for derivatives linked to
certain IBORs
Fallback Adoption
• The Protocol includes the ISDA fallbacks in the relevant covered agreements
and transactions and the application of the fallbacks is product-agnostic.
Therefore, the ISDA fallbacks will be included in the relevant IBOR
derivatives contracts, including non-linear derivatives contracts. However,
the fallbacks may function differently for various non-linear derivatives. In this
regard, ISDA has published the RFR Conventions and IBOR Fallbacks –
Product Table which we would like to draw your attention to
Fallback Methodology
• Industry bodies and official sector working groups, including the Loan Markets
Association (LMA) in the UK and ARRC in the US, have published more
robust fallbacks for use in LIBOR-referenced loan agreements
Fallback Adoption
• Unlike derivative markets, the adoption of revised fallbacks in existing LIBOR
loans will require amendment at an individual contract level
• The Bank has updated its bilateral client documentation to include IBOR
Transition related amendments and hardwired fallbacks. All client
documentation entered into from 1 October 2020 references these
amendments
Finalisation: LIBOR Cessation Timelines and the ISDA Spread Adjustment April 2021
Amending Fallback Language
5. Remediation Approach
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Currency RFR Products Available Tenor
SOFR
• Interest rate swaps (fixed vs SOFR)
• SOFR Lending (volume restricted)
• SOFR – USD LIBOR basis swaps
• SOFR – Fed Funds basis swaps
Up to 30 years
SONIA
• Interest rate swaps (fixed vs SONIA)
• SONIA Lending (volume restricted)
• SONIA – GBP LIBOR basis swaps
Up to 30 years
SARON• Interest rate swaps (fixed vs SARON)
• SARON – CHF LIBOR basis swapsUp to 10 years
€STR• Interest rate swaps (fixed vs €STR)
• €STR – EURIBOR (or EUR LIBOR) basis swapsUp to 30 years
TONA• Interest rate swaps (fixed vs TONA)
• TONA – JPY LIBOR basis swapsUp to 30 years
HONIA• Interest rate swaps (fixed vs HONIA and 3mH vs HONIA)
• SOFR – HONIA basis swapsUp to 10 years
SORA• Interest rate swaps (fixed vs SORA)
• SORA – SOR basis swapsUp to 21 years
Derivatives6. The Bank’s RFR Capabilities
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The Bank has lending product capabilities in all active RFR markets. We are ready to support
industry standard RFR pricing enquires and can provide granular product capabilities information
upon request. Clients are encouraged to familarise themselves with the RFR product suite and to
consider transacting once ready.
Currency RFR Lending* (Bilateral/Syndicated/acting as an Agent) Overdrafts and Transaction Banking Products (Cash and Trade Products)
SOFR
20 booking locations** are supported for Overnight
RFR rates Trade finance products are short dated in nature. At present, Term SONIA
Reference Rate (TSRR) is recommended only for Discounted products, while other
Trade Finance products are expected to adopt an Overnight RFR rates. Term
Rates based on RFRs are yet to be developed for other currencies.
We support O/N SONIA and TSRR based products since 1 April 2021. In light of
the gradual market adoption of RFR rates, the Bank will continue to offer LIBOR
based pricing provided the maturities are no later than 31 December 2021.
SONIA
€STR
SARON
RFR may be supported on a case-by-case basis
TONA
SORA Supported
Lending and Trade6. RFR Product Capabilities
Finalisation: LIBOR Cessation Timelines and the ISDA Spread Adjustment April 2021
* The Bank offers Compounded in Arrears and Simple Interest Capabilities for RFR Term Rates (where applicable) are in progress. Where the Compounded in Arrears methodology is elected, the RFRWG and the
ARRC both recommend Lookback/Lag with five business days without Observation Shift. Clients, however, may also choose Lookback with an Observation Shift as a viable and robust alternative
** The 20 booking locations where RFR pricing is available: Bahrain, Botswana, China, DIFC, Germany, Ghana, Hong Kong, India, India entity “Gift City”, Mauritius, Oman, Philippines, Singapore, South Africa, Qatar,
Taiwan, UAE, UK, US, and Zambia
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Standard Chartered acknowledge the importance of the transition and is committed to partnering
with and assisting you through the transition. We will be responding with the following:
What to Expect from Us7. Next Steps
We will engage with you to commence remediation discussion on your LIBOR contracts
that are impacted by the cessation on 31 December 2021
If you are ready to commence remediation, we will discuss your options for remediation
and a transition plan
If you are not yet ready to transition, we will continue our engagement with you on this
topic to support your remediation activities
Where your contracts are linked to USD LIBOR fixings which will discontinue in mid-
2023, the Bank will engage with you at a later time
However, if you would also like to remediate your USD LIBOR contracts at the same
time as your other contracts, please reach out to your RMs.
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Below are the recommended actions and next steps for you to take to ensure a successful
transition.
7. Next Steps
RFR Adoption
Understand the industry targets on LIBOR product cessation
Familiarise yourself with RFR markets and products
Transition away from LIBOR and commence transacting in RFRs
LIBOR Remediation
Identify all your LIBOR exposures
Understand your LIBOR exposures by currency and contract maturity
Prepare for active contract conversion
If active conversion is no viable, ensure robust fallbacks are adopted where possible
Finalisation: LIBOR Cessation Timelines and the ISDA Spread Adjustment April 2021
Recommended Actions and Next Steps
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Q&A
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Appendix
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ISDA: Understanding IBOR Benchmark Fallbacks | Technical Notice – Spread Fixing Event for LIBOR
FSB: Overnight Risk-Free Rates: A User’s Guide
UK RFR WG: Transition Roadmap
ARRC: Transition Timeline and Best Practices for Completing Transition from LIBOR
Standard Chartered: LIBOR Transition webpage
Standard Chartered: LIBOR Transition ‘Checklist for Success’
If you have additional queries on the transition, please reach out to our respective Standard Chartered point of
contact or contact [email protected]
Appendix A
Finalisation: LIBOR Cessation Timelines and the ISDA Spread Adjustment April 2021
Resources
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• The Financial Conduct Authority (FCA)
• Financial Stability Board (FSB)
• International Accounting Standards Board (IASB)
• International Swaps and Derivatives Association (ISDA)
• International Capital Market Services Association (ICMSA)
• The US-based Alternative Reference Rates Committee (ARRC)
• Loan Syndications and Trading Association (LSTA)
• Loan Market Association (LMA)
List of Regulatory and Industry BodiesAppendix B
Finalisation: LIBOR Cessation Timeline and the ISDA Spread Adjustment
• The Working Group on Sterling Risk-Free Reference Rates (RFRWG)
• The Working Group on Euro Risk-Free Rates
• The National Working Group on Swiss Franc Reference Rates
• Cross-Industry Committee on Japanese Yen
• Reserve Bank of Australia
• Canadian Alternative Reference Rate Working Group
• The Steering Committee for SOR Transition to SORA
• The Hong Kong Treasury Markets Association
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GBP LIBOR SONIA
Basis of
Determination
Based on panel bank submissions with a heavy
reliance upon expert judgement
Based on actual market transactions
Published
Tenors
Seven tenors from overnight to 12 months
(forward looking rate
O/N, published daily (backward looking rate)
Payment
Frequency
Typically following the index tenor (Customisable
according to preference or underlying exposure)
Customisable according to the preference or underlying exposure
Interest
Fixing
Calculation
Rate is fixed in advance at the start of the interest
period (Reset Date). Actual fixing varies between
zero to two business days prior to Reset Date,
depending on currency
SONIA fixed in arrears* as it is an O/N backward looking rate, interest can be calculated using the
following methodologies:
SONIA compounded-in-arrears: Takes into account the additional amount of interest owed each day
by applying the daily rate of interest both to the principal borrowed and the accumulated unpaid interest
component.
• Cumulative Compounded Rate* - calculates the compounded rate at the end of the interest period
and is applied to the whole period
• Non-Cumulative Compounded Rate (NCCR)* - derived from the Cumulative Compounded Rate i.e.
cumulative rate as of current day minus cumulative rate as of prior banking day. This generates a
daily compounded rate which allows the calculation of a daily interest amount
SONIA simple interest: The averaged RFR in this convention is the simple arithmetic mean of the
daily RFRs.
Payment
Convention
At the end of the interest period With SONIA being fixed in arrears, two possible options for payment conventions to allow interest
payment to be known in advance (five days) of settlement, include:
• Lookback with observation shift
• Lookback without observation shift
Understanding differences between GBP LIBOR and SONIAAppendix C
Finalisation: LIBOR Cessation Timeline and the ISDA Spread Adjustment
*Term SONIA rates are evolving and rates are presently available on some sites of independent benchmark administrators, e.g. ICE Benchmark Administration and Refinitiv. The UK authorities are expecting limited
use cases for Term SONIA (e.g. trade finance and Islamic Banking) and therefore any client demand should be discussed with your business representative.
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Finalisation: LIBOR Cessation Timelines and the ISDA Spread Adjustment April 2021
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Finalisation: LIBOR Cessation Timelines and the ISDA Spread Adjustment April 2021